Laws, Regulations & Annotations
Business Taxes Law Guide – Revision 2014
Sales and Use Tax Annotations
395.0000 OCCASIONAL SALES—SALE OF A BUSINESS—BUSINESS REORGANIZATION—Regulation 1595
(a) IN GENERAL
395.0069 Sale by Franchisee. A person obtained a franchise from the franchisees and thereafter transferred the franchise rights to a second franchisee with the consent of the franchiser. This transfer was a sale by the first franchisee. Upon obtaining the franchise, the second franchisee obtained a written agreement from the franchiser for the "usual ten year lease." This subsequent agreement released the first franchisee from his rights and duties to the franchiser.
A few years later, the second franchisee was unable to continue payments and returned the assets to the franchiser, with no consideration other than forgiveness of the franchisee's obligation to the franchiser. Although the second franchisee acquired the rights from the first franchisee, the agreement for the transfer to the second franchisee from the first franchisee replaced the original contract between the franchiser and the first franchisee.
The franchiser, therefore, stood in the place of the vendor of the franchise. The second franchisee's return of the franchise to the franchiser was not a sale. (See Regulation 1573(c).) 3/6/64.